- The break-even raise is the inflation rate — anything below it is a real-terms pay cut regardless of the nominal increase.
- Small gaps compound: half a point below inflation is invisible in year one and obvious by year ten.
- Compare the raise you are offered against the inflation rate over the same period, not against last year’s number.
- This is a before-tax comparison — a raise that moves you across a bracket threshold keeps less of itself than the headline suggests.
How to tell whether a raise is really a raise
A raise is quoted in nominal terms — the number on the offer — but what you care about is what the money buys. If prices rose faster than your pay did, the larger number buys less than the smaller one did a year ago, and that is a pay cut however it is described.
The test is one comparison: your raise percentage against the inflation rate over the same period. Above it and you are ahead in real terms; below it and you are behind; exactly on it and you have stood still, which is what "break-even" means here.
The reason this deserves its own page is that the gaps look trivial and compound anyway. Half a point below inflation is a rounding error in year one and an unmistakable erosion by year ten — and because each year’s raise is applied to the previous year’s salary, the shortfall compounds on both sides at once.
The math
The new salary is the current salary times one plus the raise. Its real value is that figure divided by one plus the inflation rate — the same price-level division the inflation calculator uses, over one year.
The break-even raise is the inflation rate itself, and it is stated as its own row rather than left for you to infer. That sounds obvious and is exactly the step people skip: comparing a raise percentage to a price-level ratio is where the off-by-one lives, and the break-even *salary* row spells out the dollar figure the offer had to reach.
The multi-year table applies the same raise and the same inflation every year, compounding both. That is deliberately a projection at constant rates rather than a forecast — real raises and real inflation both move — but it isolates the one thing the page is about: what a persistent gap between the two does over a career-length horizon.
Worked example
An $85,000 salary with a 3% raise, against 3.5% inflation. The new salary is $87,550 — genuinely more money. In today’s purchasing power it is $84,589: $411 less than before the raise, a real change of −0.48%.
The break-even raise was 3.5%, which would have meant a salary of $87,975. The offer fell $425 short of standing still. Now hold both rates and look forward: after five years the nominal salary is $98,538 but its real value is $82,967, and after ten it is $114,233 nominal and $80,982 real. The number on the paycheck has grown 34% and the purchasing power behind it has fallen 5%.
Key terms
- Nominal salary
- The number on your offer or paycheck, unadjusted for prices. It is what people mean by "salary" and it is not what a salary buys.
- Real salary
- The nominal salary adjusted for the price level — expressed here in today’s dollars, so two years can be compared directly.
- Break-even raise
- The raise that exactly matches inflation, leaving purchasing power unchanged. Anything less is a real-terms cut.
- Real change
- The difference between your real salary after the raise and your salary before it. It is the only figure in this comparison that answers "am I better off".